Home Depot 2008 Annual Report Download

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The Home Depot
2008 Annual Report
7KH+RPH'HSRW,QF

Table of contents

  • Page 1
    The Home Depot 2008 Annual Report

  • Page 2
    ... label credit card agreement, capping our cost of private label credit. In the fourth quarter, we announced our decision to exit EXPO and related businesses. These actions will make the Company stronger. On the financial side, we ended the year with a solid operating profit and $41 billion in assets...

  • Page 3
    ... planning platform. The rest of the business will benefit from the lessons learned from the Canadian effort. None of these activities would be possible without outstanding associates. Our associates carry our service culture to our customers every day. For 2008, we issued success sharing checks...

  • Page 4
    ...(Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (770) 433-8211 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, $0.05 Par Value Per Share New York Stock...

  • Page 5
    ..., Financial Statement Schedules Signatures 53 57 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence...

  • Page 6
    ... the planned closing of our EXPO, THD Design Center and Yardbirds stores as part of our focus on our core business. The Home Depot, Inc. is a Delaware corporation that was incorporated in 1978. Our Store Support Center (corporate office) is located at 2455 Paces Ferry Road, N.W., Atlanta, Georgia...

  • Page 7
    ... stores, we offer a variety of programs to these customers, including delivery and will-call services, dedicated staff, extensive merchandise selections and expanded credit programs, all of which we believe increase sales to these customers. Products. A typical Home Depot store stocks approximately...

  • Page 8
    ... 920 stores received new paint dispensers. Credit Services. We offer six credit programs through third-party credit providers to professional, D-I-Y and D-I-F-M customers. In fiscal 2008, approximately 3.2 million new The Home Depot credit accounts were opened, and the total number of The Home Depot...

  • Page 9
    ... on the execution of the EH&S programs. Additionally, we have a Store Support Center-based team of dedicated EH&S professionals who evaluate, develop, implement and enforce policies, processes and programs on a Company-wide basis. Environmental. The Home Depot is committed to conducting business in...

  • Page 10
    ...quarter. Competition. Our business is highly competitive, based in part on price, store location, customer service and assortment of merchandise. In each of the markets we serve, there are a number of other home improvement stores, electrical, plumbing and building materials supply houses and lumber...

  • Page 11
    ...the positive cash flow we generate from our operating activities and our access to capital markets, including our commercial paper programs supported by a long-term bank line-of-credit commitment. Although we currently maintain a strong investment grade rating and had no outstanding commercial paper...

  • Page 12
    ... locations, negotiate leases or real estate purchase agreements on acceptable terms, attract and train qualified employees, and manage pre-opening expenses, including construction costs. Environmental regulations, local zoning issues and other laws related to land use affect our ability to open new...

  • Page 13
    ... end of fiscal 2008: U.S. Locations Number of Stores U.S. Locations Number of Stores Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Guam Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan...

  • Page 14
    ... of fiscal 2008, we had 41 other retail store locations, which included 34 EXPO Design Center stores located in Arizona, California, Florida, Georgia, Illinois, Maryland, Massachusetts, Missouri, New Jersey, New York, Tennessee, Texas and Virginia, five Yardbirds stores located in California and two...

  • Page 15
    ... of profits, benefits and compensation obtained by the defendants, cancellation of a new stock incentive plan and awards granted under such plan, punitive damages, costs and attorneys' fees. Under the terms of the settlement, the Company agreed to maintain or adopt certain corporate governance...

  • Page 16
    ...2008, the Company established a reserve for this settlement, which is recorded in our Consolidated Balance Sheets in Other Accrued Expenses. From the third quarter of 2004 through the fourth quarter of 2008, current and former associates have filed three pending lawsuits in the District Court of New...

  • Page 17
    ... Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Since April 19, 1984, our common stock has been listed on the New York Stock Exchange, trading under the symbol "HD." The Company paid its first cash dividend on June 22, 1987, and...

  • Page 18
    ... ending January 30, 2009, the last trading day of fiscal 2008. The graph assumes $100 invested at the closing price of the Company's common stock on the New York Stock Exchange and each index on January 30, 2004 and assumes that all dividends were reinvested on the date paid. The points on the graph...

  • Page 19
    ... its share repurchase program. The number and average price of shares purchased in each fiscal month of the fourth quarter of fiscal 2008 are set forth in the table below: Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program(2) Approximate Dollar Value...

  • Page 20
    ... of approximately 50 stores from our new store opening pipeline, the planned exit of our EXPO, THD Design Center, Yardbirds and HD Bath businesses and strategic support staff reductions. Additionally, fiscal 2008 included a $163 million pretax write-down of our investment in HD Supply and a $52...

  • Page 21
    ... buying power of The Home Depot for the benefit of our pro customers. Our direct ship program allows us to have large orders delivered from our vendors to the customer's job site directly, reducing handling, lead-time and cost while building loyalty with the pro customer. We opened 62 new stores in...

  • Page 22
    ... week of fiscal 2007 increased customer transactions by 20 million, negatively impacted average ticket by $0.05, negatively impacted weighted average weekly sales per operating store by $3 thousand and increased weighted average sales per square foot by $4.77. Includes Net Sales at locations open...

  • Page 23
    ..., Paint, Electrical, Kitchen/Bath and Millwork were below the Company average for fiscal 2008. Softness in our big ticket categories negatively impacted average ticket, which decreased 3.3% to $55.61 for fiscal 2008. In order to meet our customer service objectives, we strategically open stores near...

  • Page 24
    ...in fiscal 2008 and 293 million shares for $10.8 billion in fiscal 2007. Since the inception of the repurchase program in 2002, we have repurchased 746 million shares of our common stock for a total of $27.3 billion. Discontinued Operations On August 30, 2007, the Company closed the sale of HD Supply...

  • Page 25
    ...we are making in support of our five key priorities. As a percentage of Net Sales, total payroll increased by 76 basis points for fiscal 2007 over fiscal 2006. This reflects investments in store labor and our Master Trade Specialists program, the impact of our success sharing bonus plans, as well as...

  • Page 26
    ... offer related to the sale of HD Supply in the third quarter of fiscal 2007 and by repayments in fiscal 2008 of $1.7 billion of short-term commercial paper and $282 million of structured financing debt. We repurchased 2.4 million shares of our common stock for $70 million in fiscal 2008 and a total...

  • Page 27
    ... reflected in our Consolidated Balance Sheets. As of the end of fiscal 2008, our long-term debt-to-equity ratio was 54.4% compared to 64.3% at the end of fiscal 2007. As of February 1, 2009, we had $525 million in Cash and Short-Term Investments. We believe that our current cash position, access to...

  • Page 28
    ... redemption of gift cards in Net Sales. Merchandise Inventories Our Merchandise Inventories are stated at the lower of cost (first-in, first-out) or market, with approximately 82% valued under the retail inventory method and the remainder under a cost method. Retailers like The Home Depot, with many...

  • Page 29
    ... Consolidated Financial Statements in fiscal 2008, 2007 and 2006. Recent Accounting Pronouncements In June 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") Emerging Issues Task Force No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment...

  • Page 30
    ... of the Board of Directors, consisting solely of outside directors, meets five times a year with the independent registered public accounting firm, the internal auditors and representatives of management to discuss auditing and financial reporting matters. In addition, a telephonic meeting is...

  • Page 31
    ... of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets of The Home Depot, Inc. and subsidiaries as of February 1, 2009 and February 3, 2008, and the related Consolidated Statements of Earnings, Stockholders' Equity and Comprehensive Income, and Cash Flows...

  • Page 32
    Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders The Home Depot, Inc.: We have audited the accompanying Consolidated Balance Sheets of The Home Depot, Inc. and subsidiaries as of February 1, 2009 and February 3, 2008, and the related Consolidated ...

  • Page 33
    THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS amounts in millions, except per share data Fiscal Year Ended(1) February 1, February 3, January 28, 2009 2008 2007 NET SALES Cost of Sales GROSS PROFIT Operating Expenses: Selling, General and Administrative Depreciation and ...

  • Page 34
    THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS amounts in millions, except share and per share data February 1, 2009 February 3, 2008 ASSETS Current Assets: Cash and Cash Equivalents Short-Term Investments Receivables, net Merchandise Inventories Other Current Assets Total ...

  • Page 35
    ... DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME amounts in millions, except per share data Common Stock Shares Amount Paid-In Capital Accumulated Other Retained Comprehensive Treasury Stock Earnings Income (Loss) Shares Amount Total Stockholders...

  • Page 36
    THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS amounts in millions Fiscal Year Ended(1) February 1, February 3, January 28, 2009 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: ...

  • Page 37
    ...Canada, 74 The Home Depot stores in Mexico and 12 The Home Depot stores in China. On January 26, 2009, the Company announced plans to close the EXPO, THD Design Center and Yardbirds stores as part of the Company's focus on its core business. The Consolidated Financial Statements include the accounts...

  • Page 38
    ... customers were $37 million and $57 million as of February 1, 2009 and February 3, 2008, respectively. The Company's valuation reserve related to accounts receivable was not material to the Consolidated Financial Statements of the Company as of the end of fiscal 2008 or 2007. Merchandise Inventories...

  • Page 39
    ...the accompanying Consolidated Balance Sheets. Certain development costs not meeting the criteria for capitalization are expensed as incurred. Revenues The Company recognizes revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives services...

  • Page 40
    ...services performed, the cost of transportation of merchandise from vendors to the Company's stores, locations or customers, the operating cost of the Company's sourcing and distribution network and the cost of deferred interest programs offered through the Company's private label credit card program...

  • Page 41
    ...expects to dispose of or sublet those locations over varying periods. Also in fiscal 2008, the Company announced that it would exit its EXPO, THD Design Center, Yardbirds and HD Bath businesses in order to focus on its core The Home Depot stores. The Company expects to close 34 EXPO Design Center 36

  • Page 42
    ... Accrued Balance, February 1, 2009 Asset impairments Lease obligation costs, net Severance Other Total 3. CHANGE IN ACCOUNTING PRINCIPLE $580 252 78 41 $951 $- 39 6 18 $63 $542 - - 3 $545 $ 38 213 72 20 $343 During fiscal 2008, the Company implemented a new enterprise resource planning ("ERP...

  • Page 43
    ... adjustments to have a material impact on the Company's consolidated financial statements in any of the prior years affected. Historical Stock Option Practices During fiscal 2006, the Company requested that its Board of Directors review its historical stock option granting practices. A subcommittee...

  • Page 44
    ... left the Company, generally followed a practice of reviewing closing prices for a prior period and selecting a date with a low stock price to increase the value of the options to employees on lists of grantees subsequently approved by a committee of the Board of Directors. • The annual option...

  • Page 45
    ... of these credits based on historical experience. Beginning Retained Earnings for fiscal 2006 was decreased by $30 million in the accompanying Consolidated Financial Statements to reflect the appropriate adjustments to Merchandise Inventories and Accounts Payable, net of tax. Impact of Adjustments...

  • Page 46
    ... to impact the Company's liquidity or capital resources. Short-Term Debt under the commercial paper programs was as follows (dollars in millions): February 1, 2009 February 3, 2008 Balance outstanding at fiscal year-end Maximum amount outstanding at any month-end Average daily short-term borrowings...

  • Page 47
    ... financial ratios or specified levels of net worth or liquidity. However, the indenture governing the Senior Notes contains various restrictive covenants, none of which is expected to impact the Company's liquidity or capital resources. Interest Expense in the accompanying Consolidated Statements...

  • Page 48
    ...were as follows (amounts in millions): February 1, 2009 February 3, 2008 Current: Deferred Tax Assets: Property and equipment Accrued self-insurance liabilities Other accrued liabilities Current Deferred Tax Assets Deferred Tax Liabilities: Accelerated inventory deduction Other Current Deferred Tax...

  • Page 49
    ... the deferred tax asset related to net operating losses to an amount that is more likely than not to be realized. Total valuation allowances at February 1, 2009 and February 3, 2008 were $12 million and $7 million, respectively. As a result of its sale of HD Supply, the Company incurred a tax loss...

  • Page 50
    ... amounts, but the Company does not anticipate the resolution of these matters will result in a material change to its consolidated financial position or results of operations. 8. EMPLOYEE STOCK PLANS The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan ("2005 Plan") and The Home Depot, Inc. 1997...

  • Page 51
    ...85% of the stock's fair market value on the last day of the purchase period. During fiscal 2008, there were 3 million shares purchased under the ESPPs at an average price of $19.74. Under the outstanding ESPPs as of February 1, 2009, employees have contributed $6 million to purchase shares at 85% of...

  • Page 52
    ... restricted stock outstanding at February 1, 2009 (shares in thousands): Number of Shares Weighted Average Grant Date Fair Value Outstanding at January 29, 2006 Granted Restrictions lapsed Canceled Outstanding at January 28, 2007 Granted Restrictions lapsed Canceled Outstanding at February 3, 2008...

  • Page 53
    ...054 8 2,062 Stock plans include shares granted under the Company's employee stock plans as described in Note 8 to the Consolidated Financial Statements. Options to purchase 52.2 million, 43.4 million and 45.4 million shares of common stock at February 1, 2009, February 3, 2008 and January 28, 2007...

  • Page 54
    12. COMMITMENTS AND CONTINGENCIES At February 1, 2009, the Company was contingently liable for approximately $695 million under outstanding letters of credit and open accounts issued for certain business transactions, including insurance programs, trade contracts and construction contracts. The ...

  • Page 55
    ... to materially affect, the Company's internal control over financial reporting. Management's Report on Internal Control over Financial Reporting The information required by this item is incorporated by reference to Item 8. "Financial Statements and Supplementary Data" of this report. Item 9B. None...

  • Page 56
    ... sections entitled "Election of Directors and Director Biographies," "Board of Directors Information," "General" and "Audit Committee Report" in the Company's Proxy Statement for the 2009 Annual Meeting of Shareholders (the "Proxy Statement"). Executive officers of the Company are appointed by, and...

  • Page 57
    ...to the sections entitled "Board of Directors Information" and "General" in the Company's Proxy Statement. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference to the section entitled "Independent Registered Public Accounting Firm's Fees...

  • Page 58
    ...1, 2009, February 3, 2008 and January 28, 2007; Notes to Consolidated Financial Statements; Management's Responsibility for Financial Statements and Management's Report on Internal Control Over Financial Reporting; and Reports of Independent Registered Public Accounting Firm. (2) Financial Statement...

  • Page 59
    ... Award Pursuant to The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan. [Form 8-K filed on March 13, 2009, Exhibit 10.5] Form of Deferred Share Award (Non-Employee Director) Pursuant to The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan. [Form 8-K filed on March 27, 2007, Exhibit 10.2] 54

  • Page 60
    ... The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan. [Form 8-K filed on March 27, 2007, Exhibit 10.10] Form of Performance Share Award Pursuant to The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan. [Form 8-K filed on March 13, 2009, Exhibit 10.6] Separation Agreement Between the Company and...

  • Page 61
    ...the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item...

  • Page 62
    ... Chief Executive Officer (Principal Executive Officer) Chief Financial Officer and Executive Vice President - Corporate Services (Principal Financial Officer and Principal Accounting Officer) Director Director Director Director Director Director Director Director March 25, 2009 March 25, 2009 March...

  • Page 63
    ...-to-equity (%) Total debt-to-equity (%) Current ratio Inventory turnover(2) Return on invested capital (%)(2) STATEMENT OF CASH FLOWS DATA Depreciation and amortization Capital expenditures Payments for businesses acquired, net Cash dividends per share ($) STORE DATA Number of stores Square footage...

  • Page 64
    ...day of operation. Comparable store sales is intended only as supplemental information and is not a substitute for Net Sales or Net Earnings presented in accordance with generally accepted accounting principles. Comparable store sales in fiscal years prior to 2002 were reported to the nearest percent...

  • Page 65
    ....com/investor INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP Suite 2000 303 Peachtree Street, NE Atlanta, GA 30308 STOCK EXCHANGE LISTING New York Stock Exchange Trading symbol - HD ANNUAL MEETING The Annual Meeting of Shareholders will be held at 9 a.m., Eastern Time, May 28, 2009, at...

  • Page 66
    More saving. More doing. :4 7KH+RPH'HSRW,QF2455 Paces Ferry Road, NW Atlanta, GA 30339-4024 United States 770.433.8211 www.homedepot.com